Sony slides as market gives thumbs-down to revamp
Sony shares tumbled almost five percent on Monday as investors fretted that with a big loss looming this year, a plan to overhaul the struggling Japanese electronic icon may not be radical enough.
Sony fell by as much as 4,8% in early trade as dealers gave their first response to the restructuring plan, which was announced after the close of trade on Thursday ahead of a long holiday weekend.
Sony ended the morning session 3,30% lower at 3 810 yen as gains by Japanese shares overall to new four-year highs helped staunch losses.
Despite Sony boss Howard Stringer’s plan to cut 10 000 jobs, dispose of a swathe of assets, axe 11 of its 65 manufacturing plants and one-fifth of its product line, analysts expressed concern that he had not gone far enough.
“The company’s restructuring plan cannot be called drastic,” Merrill Lynch analyst Hitoshi Kuriyama wrote in a research report.
“We believe this structural reform is the minimum that is required for the bloated and slow-moving management at Sony,” he added.
“It remains unclear, however, to what extent these reforms will directly result in improved product and marketing strength, and reduced costs.”
Sony last week issued its second profit warning this year, forecasting a net loss of 10-billion yen ($90-million) for the year to March 2006, largely owing to one-off costs linked to the restructuring drive.
“If I were to give a grade to Mr Stringer’s recent plan it would be a C-plus,” said John Yang, an analyst at the Tokyo office of Standard and Poor’s.
“I don’t see any difference from the plan that was proposed a few years ago by former [head] Nobuyuki Idei. It’s not exciting at all,” he said.
“I’m still not convinced by Mr Stringer’s statement that he can revive and stir growth in electronics.”
Stringer, the first foreigner to take the helm at Sony in its six-decade history, said in a newspaper interview that he was unable to make any drastic turn at Tokyo-based Sony, in part due to resistance from Japanese stakeholders.
“There’s a cultural divide,” he told the Financial Times in an interview published over the weekend.
“The Japanese investors say don’t touch headcount, the western investors say I haven’t done enough. I wanted to escape [Thursday’s announcement] with as little damage as I could get away with because I knew I was trapped.”
He said crucial to Sony’s success was to integrate software and hardware to differentiate its products, taking on strategies laid out by the previous Sony management.
The key to Sony’s growth was in “finding a way to bring entertainment and content and everything else together,” he added.
Stringer is focusing his efforts on revitalising the core electronics business, which accounts for 70% of the group’s annual sales of $67-billion, but has no plans to abandon movies, music and game software.
Sony has fallen behind rivals in the lucrative television sector and, despite inventing the Walkman, it is now struggling against Apple’s phenomenally successful iPod in the market for digital music players.
Even if Stringer did achieve his stated goal of breaking down “silo walls” between hardware and software units well known for poor communication, it was far from clear he could revive growth in electronics sales, said Yang at Standard and Poor’s.
“That’s why I give him a C-plus and why the market realises that Stringer is just passing on the legacy of former chairman Idei,” he said.
In 2003 Idei announced 20 000 job cuts over three years as part of a “Transformation 60” plan to trim costs and to put its media, entertainment and electronics units on the same path ahead of Sony’s 60th anniversary in 2006.